[Federal Register Volume 67, Number 25 (Wednesday, February 6, 2002)]
[Notices]
[Pages 5626-5630]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 02-2793]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-45365; File No. SR-AMEX-2001-106]


Self-Regulatory Organizations; Notice of Filing of Proposed Rule 
Change and Amendment No. 1 Thereto by the American Stock Exchange LLC 
Relating to Unlisted Trading Privileges in Nasdaq National Market 
Securities

January 30, 2002.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that 
on December 17, 2001, the American Stock Exchange LLC (``Amex'' or 
``Exchange'') filed with the Securities and Exchange Commission 
(``Commission'') the proposed rule change as described in Items I, II, 
and III below, which Items have been prepared by the Exchange. The Amex 
filed an amendment to its proposal on January 14, 2002.\3\ The 
Commission is publishing this notice to solicit comments on the 
proposed rule change as amended from interested persons.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ See letter from Geraldine Brindisi, Vice President and 
Corporate Secretary, Amex, to Katherine England, Assistant Director, 
Division of Market Regulation, Commission (January 11, 2002) 
(``Amendment No. 1'').

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[[Page 5627]]

I. Self-Regulatory Organization's Statement of the Terms of 
Substance of the Proposed Rule Change

    The Amex proposes to adopt new Amex Rule 118 and to amend Amex 
Rules 1, 3, 7, 24, 115, 170, 175, 190, 205 and Section 950 of the Amex 
Company Guide to provide for the trading of Nasdaq National Market 
securities pursuant to unlisted trading privileges. The text of the 
proposed rule change is below. Proposed new language is in italics; 
proposed deletions are in brackets.
* * * * *
Rule 1. Hours of Business
    No change.
    Commentary
    .01 through .04. No change.
    .05  The hours of business for a security traded on the Exchange 
pursuant to unlisted trading privileges shall be the same as the hours 
during which the security is traded in the primary market for such 
security.
Rule 3. Excessive Dealing
    (a) No change.
    (b) Trading with non-member.
    No regular or options principal member shall effect, in the rooms 
of the Exchange, a transaction with an associate member or with a non-
member, in any security dealt in on the Exchange; but this rule shall 
not prohibit transactions permitted by Rule 118, Rule 152 or by Section 
7 of Part II of the Rules of the Exchange or with an employee of the 
Exchange or American Stock Exchange Clearing Corporation engaged in 
carrying out arrangements approved by the Board of Governors to 
facilitate the borrowing and lending of money.
    (c) through end. No change.
Rule 7. Short Sales
    No change.
Commentary
    .01  No change.
    .02  This Rule 7 does not apply to transactions on the Exchange in 
Nasdaq National Market securities pursuant to unlisted trading 
privileges effected under Exchange Rule 118.
Rule 24. Block Transactions
    (a) No change.
    (b) The restrictions of paragraph (a) shall not apply to:
    (i) through (v) No change.
    (vi) orders in Nasdaq National Market securities to which the 
Exchange has extended unlisted trading privileges.
Rule 115. Exchange Procedures for Use of Unusual Market Exception
    No change.
    Commentary .01.
    1. and 2. No change.
    3. The Market Operations Division, either upon receiving 
notification from a Floor Official with respect to a specialist as 
provided in paragraph 1(b) or upon making its own determination with 
respect to the Exchange as provided in paragraph 2, shall notify the 
Securities Industry Automation Corporation (and request that it notify 
quotation vendors) or, with respect to Nasdaq National Market 
securities to which the Exchange has extended unlisted trading 
privileges, the Processor for Nasdaq National Market securities, 
regarding the Exchange's inability to accurately collect, process, and 
make available the quotation data required by SEC.
Rule 11Ac1-1.
    4. No change.
    Commentary  .02  No change.

Trading in Nasdaq National Market Securities

Rule 118. (a) Definitions

    (i) The term ``Nasdaq National Market security'' shall mean any 
security designated as such pursuant to National Association of 
Securities Dealers (``NASD'') Rule 4200 and as to which the Exchange 
has extended unlisted trading privileges pursuant to Section 12(f) of 
the Securities Exchange Act of 1934.
    (ii) The term ``Nasdaq System'' shall mean the Nasdaq's Automated 
Quotation System.
    (b) Except to the extent that the provisions of Rule 118 govern, or 
unless the context otherwise requires, the provisions of the 
Constitution and Rules of the Exchange are applicable to trading in 
Nasdaq National Market securities.
    (c) Each Exchange specialist shall permit each Nasdaq System market 
maker, acting in its capacity as market maker, direct telephone access 
to the specialist post in each Nasdaq National Market security in which 
such market maker is registered as a market maker. Such access shall 
include appropriate procedures to assure the timely response to 
communications received through telephone access. Nasdaq System market 
makers may use such telephone access to transmit orders for execution 
on the Exchange. Any order received on the Floor via telephone from a 
Nasdaq System market maker shall be effected in accordance with the 
rules relating to the making of bids and offers and transactions on the 
Floor, subject to exceptions to Exchange rules applicable to trading in 
Nasdaq National Market Securities as set forth in Commentary .01 to 
this Rule.
    (d) The Exchange will display on its trading floor the quotations 
distributed by any Nasdaq System market maker in Nasdaq National Market 
securities. Exchange specialists may send orders from the Floor of the 
Exchange for execution via telephone to any Nasdaq System market maker 
in each Nasdaq National Market security in which it displays 
quotations. Quotations in Nasdaq National Market securities from other 
market centers shall have no standing in the trading crowds on the 
Floor.
    (e) Pursuant to the Nasdaq Unlisted Trading Privileges Plan 
(``Plan''), the Exchange shall report to the Plan Processor intermarket 
transactions effected on the Exchange for which the Exchange member is 
the seller.
    (f) Comparison of intermarket transactions in Nasdaq National 
Market securities will be made pursuant to procedures to be established 
between Nasdaq and the Exchange.
    (g) Registration of Specialists--Specialists who wish to trade 
Nasdaq National Market securities must be registered and qualified by 
the Exchange. Such persons will be required to:
    (1) if conducting business with the public, obtain a Series 7, 
General Securities Representative license; and,
    (2) complete a training period as deemed adequate by the Exchange.
    (h) Non-Liability of Exchange-Article IV, Section 1(e) of the 
Exchange Constitution shall apply to trading of Nasdaq National Market 
securities on the Exchange pursuant to unlisted trading privileges, and 
the Exchange, its affiliates, and any of its or their respective 
officers, governors, committee members, employees or agents shall not 
be liable to a member of the Exchange, a member organization, or a 
person associated with a member or member organization to the extent 
provided in Article IV, Section 1(e).
    (i) Specialists in Nasdaq National Market securities are subject to 
the financial requirements set forth in Rule 171, Commentary .04.

Commentary

    .01  The following rules refer to trading in Nasdaq National Market 
securities and should be consulted by members and member organizations 
trading Nasdaq National Market securities on the Floor: Rule 1 
(Commentary .05); Rule 3; Rule 7 (Commentary .02); Rule 24(b); Rule 115 
(Commentary .01); Rule 170 (Commentary .11); Rule 175 (Commentary .01); 
Rule 190

[[Page 5628]]

(Commentary .06); and Rule 205 (Commentary .05).
Rule 170. Registration and Functions of Specialists
    (a) through (e)  No change.
Commentary
    .01 through .10  No change.
    .11 The following provisions of this Rule shall not apply to the 
trading of Nasdaq National Market securities to which the Exchange has 
extended unlisted trading privileges: paragraph (e), Commentary .01, 
.02, .05, .07, .08 and .09.
Rule 175. Specialist Prohibitions
    (a) through (c)  No change.

Commentary

    .01  Paragraph (a)(1) and paragraph (b) of this Rule shall not 
apply to the trading of Nasdaq National Market securities to which the 
Exchange has extended unlisted trading privileges. In addition, 
``Guidelines for Specialists' Specialty Stock Option Transactions 
Pursuant to Rule 175'' shall not apply to such trading.
Rule 190. Specialists' Transactions with Public Customers
    (a) through (e)  No change.
Commentary
    .01 through .05  No change.
    .06  Paragraph (b) of this Rule shall not apply to the trading of 
Nasdaq National Market securities to which the Exchange has extended 
unlisted trading privileges.
Rule 205. Manner of Executing Odd-Lot Orders
    No change.
Commentary
    .01 through .04.  No change.
    .05  With respect to odd-lot market and marketable limit orders in 
Nasdaq National Market securities to which the Exchange has extended 
unlisted trading privileges, orders to sell (buy) shall be filled at 
the best bid (offer) disseminated pursuant to SEC Rule 11Ac1-1 at the 
time the order has been received at the trading post or through the 
Amex Order File.
Company Guide Sec. 950  Explanation of Difference Between Listed and 
Unlisted Trading Privileges
    First paragraph--No change.
    Subject to Commentary .01 of this section, [S]securities other than 
those fully listed on the Exchange were, in the past, admitted to 
dealings on the Exchange under the designation ``admitted to unlisted 
trading privileges''. Securities in this category were admitted to 
dealings without a formal listing application or request for listing by 
the issuing company. Most of these securities were admitted to dealings 
prior to 1934, and further admission of securities to this type of 
dealings has been virtually terminated. Since companies whose 
securities are admitted to unlisted trading privileges never filed any 
listing application or request with the Exchange for trading privileges 
in their securities, they are not subject to any of the listing 
agreements applicable to fully listed companies.

Commentary

    .01  Notwithstanding the provisions of Section 950, the Exchange 
may extend unlisted trading privileges to Nasdaq National Market 
securities pursuant to Section 12(f) of the Securities Exchange Act of 
1934. Nasdaq National Market securities are designated as such by the 
NASD, pursuant to NASD rules. The Exchange has implemented certain 
rules applicable to trading in Nasdaq National Market securities. See 
Amex Rule 118.
* * * * *

II. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

    In its filing with the Commission, the Exchange included statements 
concerning the purpose of and basis for the proposed rule change and 
discussed any comments it received on the proposed rule change. The 
text of these statements may be examined at the places specified in 
Item IV below. The Exchange has prepared summaries, set forth in 
Sections A, B, and C below, of the most significant aspects of such 
statements.

A. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

1. Purpose
    The Exchange is proposing rules to accommodate trading of Nasdaq 
National Market securities on the Exchange pursuant to unlisted trading 
privileges (``UTP''), in accordance with provisions of the Joint Self-
Regulatory Organization Plan Governing the Collection, Consolidation 
and Dissemination of Quotation and Transaction Information for Nasdaq-
Listed Securities Traded on Exchanges on an Unlisted Trading Privileges 
Basis (``Plan''). The Exchange is a participant in the Plan. Exchange 
trading in Nasdaq National Market securities will be governed by 
proposed Amex Rule 118. The Exchange intends to limit Nasdaq UTP 
trading to Nasdaq National Market issues and not to include Nasdaq 
SmallCap issues at this time.
    Proposed Rule 118 includes the following provisions:
    (a) Defines Nasdaq National Market security and Nasdaq System.
    (b) States that the Exchange Constitution and rules apply to 
trading Nasdaq National Market securities, except to the extent that 
Rule 118 governs or unless the context otherwise requires.
    (c) Requires Amex specialists to permit Nasdaq market makers direct 
telephone access to the specialist post and allows Nasdaq market makers 
to use telephone access to transmit orders for execution on the Amex.
    (d) Provides that quotations distributed by Nasdaq market makers 
will be displayed on the Floor, that Amex specialists may send orders 
from the Floor for execution via telephone to Nasdaq market makers, and 
that quotations in Nasdaq securities from other market centers have no 
standing on the Floor.
    (e) Provides that the Exchange will report intermarket transactions 
in which the Exchange member is the seller to the Nasdaq UTP Processor.
    (f) Provides that comparison of intermarket transactions in Nasdaq 
National Market securities will be made pursuant to procedures to be 
established between Nasdaq and the Exchange.\4\
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    \4\ The Commission notes that these procedures must be 
established before the Commission can take final action on this 
proposal.
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    (g) Provides that specialists in Nasdaq securities must be 
registered and qualified, and includes specified testing and training 
requirements.
    (h) Provides for a disclaimer of Exchange liability with request to 
transactions on the Exchange in Nasdaq National Market securities, in 
accordance with Article IV, Section 1(e) of the Exchange Constitution.
    (i) Provides that the specialist financial requirements of Rule 
171, Commentary .04 apply to specialists in Nasdaq securities. Rule 
171, Commentary .04 currently provides that a specialist in a security 
principally traded or priced in another U.S. market must maintain a 
cash or net liquid asset position sufficient to assume a position of 20 
trading units. For Amex-listed securities, the requirement is 60 
trading units.

[[Page 5629]]

    The following existing Amex rules also would be amended to 
accommodate Nasdaq UTP trading \5\:
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    \5\ The Exchange has separately filed pursuant to Rule 19b-4 
allocation procedures applicable to Nasdaq National Market 
securities (SR-Amex-2001-107).
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Rule 1, Comm. .05

    Provides that the hours of business for securities traded on the 
Exchange pursuant to UTP are the same as the hours of trading in the 
primary market for such securities (Comm. .05).\6\
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    \6\ The Commission notes that the Plan defines Primary Market. 
However, in draft Plan Amendment No. 13, the Plan participants 
propose to delete the Primary Market definition and add a Listing 
Market definition. If the Primary Market definition is ultimately 
deleted and the Listing Market definition is added to the Plan, the 
Exchange should reflect this change in its rules where applicable.
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Rule 3

    Exempts trading with non-member Nasdaq market makers from the 
prohibition on trading with non-members.

Rule 7

    States that Rule 7, which includes the short selling ``tick-test'' 
restriction of SEC Rule 10a-1, does not apply to transactions in Nasdaq 
National Market securities effected under Rule 118.

Rule 24

    Exempts Nasdaq National Market securities from the rule's block 
transactions restrictions. Rule 24 states that, after learning about a 
trade executed or about to be executed on the Floor involving 10,000 
shares or more, a member or employee of a member or member organization 
cannot initiate or transmit to the Floor an order for the account of a 
member or member organization for two minutes following the print of 
such trade on the tape. The Exchange does not believe it is appropriate 
to apply the restrictions in Rule 124 to Nasdaq National Market 
securities, for which Amex would not be the primary market.

Rule 115

    Amends Commentary .01(3) to provide for notification to the 
Processor for Nasdaq National Market securities in the event unusual 
market activity or an unusual condition exists that prevents the 
specialist from updating quotations on a timely basis.

Rule 170, Comm. .10

    Exempts specialists from Rule 170, paragraph (e) and specified 
Commentary to the rule. Rule 170(e) restricts members or persons 
affiliated with a specialist or the specialist's member organization 
from purchasing or selling a specialty security for an account in which 
such person or party has an interest, except when the specialist is 
acting pursuant to Rule 170(c) or (d) (e.g., is engaged in dealings 
reasonably necessary to maintain a fair and orderly market, and to 
maintain price continuity and reasonable depth). The requirements of 
Rule 170 are imposed by Amex as a primary market but are not imposed by 
regional exchanges or Nasdaq. Therefore, the proposed exemption 
provides regulatory parity with other markets trading Nasdaq 
securities. The Exchange notes that the requirements of Rules 150 and 
155 will apply to orders entered with a specialist in Nasdaq National 
Market securities from affiliates of the specialist.
    The rationale underlying the proposed exemption from paragraph (e) 
also underlies the proposed exemptions from the stabilization and 
liquidating transaction restrictions of Commentaries .01 and .02;\7\ 
restrictions on adjustment of a LIFO inventory (Commentary .05), and 
restrictions on assignment to the specialist's investment account 
(Commentary .07). Commentaries .08 and .09, which relate to 
transactions in the Intermarket Trading System (``ITS'') are 
inapplicable insofar as Nasdaq securities are not traded in ITS.
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    \7\ Stabilization requirements refer to Amex rules that 
generally prohibit Amex specialists from buying on plus ticks (i.e., 
a trade at a positive variation from the prior transaction) or 
selling on minus ticks (i.e., a trade at a negative variation from 
the prior transaction). The Exchange currently has a proposed rule 
change pending with the Commission that would revise stabilization 
requirements as applied to Amex specialists. See SR-Amex-2001-54.
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Rule 175

    Provides that Rule 175(a)(1) and (b) and Rule 175 ``Guidelines'' 
shall not apply to Nasdaq UTP securities. Rule 175(a)(1) provides that 
a specialist, the specialist's member organization, or other specified 
persons cannot acquire, hold or grant an interest in any option to 
purchase or sell or to receive or deliver shares of the specialist's 
specialty stock, except as provided by Rule 175. Paragraph (b) sets out 
restrictions on specialists' ability to establish or maintain positions 
in listed options overlying their specialty securities, which positions 
must conform to the rule's ``Guidelines.'' The Exchange does not 
believe these provisions are appropriately applied to options positions 
overlying Nasdaq UTP securities insofar as the Exchange would not be 
the primary market for these securities, and restrictions such as those 
in Rule 175 are not imposed by regional exchanges or Nasdaq.

Rule 190

    Provides that paragraph (b) shall not apply to Nasdaq UTP 
securities. Paragraph (b) prohibits specialists from accepting an order 
to buy or sell the specialist's specialty securities directly from 
specified entities, including the issuer; an officer, director or 10% 
shareholder in the issuer; a pension fund; or a bank, insurance company 
or investment company. The Exchange does not view the potential abuses 
addressed by paragraph (b) as raised by trading in Nasdaq UTP 
securities insofar as the Exchange would not be the primary market for 
these securities, and restrictions such as those in Rule 190(b) are not 
imposed by regional exchanges or Nasdaq.

Rule 205, Comm. .05

    Provides that odd-lot and marketable limit orders should be filled 
at the best bid or offer disseminated through Nasdaq.

Company Guide

Section 950.

    Adds Commentary .01 to state that the Exchange may trade Nasdaq 
securities pursuant to UTP. This provision would distinguish Nasdaq UTP 
trading from Amex securities that were admitted to unlisted trading 
privileges and that, for the most part, were traded on the Amex prior 
to 1934.
2. Statutory Basis
    The Exchange believes that the proposed rule change is consistent 
with the provisions of Section 6(b) of the Act,\8\ in general, and 
Section 6(b)(5) of the Act,\9\ in particular, which requires, among 
other things, that the rules of an exchange be designed to promote just 
and equitable principles of trade, to foster cooperation and 
coordination with persons engaged in facilitating transactions in 
securities, and to remove impediments to and perfect the mechanism of a 
free and open market and a national market system.
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    \8\ 15 U.S.C. 78f(b).
    \9\ 15 U.S.C. 78f(b)(5).
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B. Self-Regulatory Organization's Statement on Burden on Competition

    The Exchange does not believe that the proposed rule change will 
impose any burden on competition that is not necessary or appropriate 
in furtherance of the purposes of the Act.

[[Page 5630]]

C. Self-Regulatory Organization's Statement on Comments on the Proposed 
Rule Change Received From Members, Participants or Others

    The Exchange has neither solicited nor received written comments on 
the proposed rule change.

III. Date of Effectiveness of the Proposed Rule Change and Timing 
for Commission Action

    Within 35 days of the date of publication of this notice in the 
Federal Register or within such longer period (i) as the Commission may 
designate up to 90 days of such date if it finds such longer period to 
be appropriate and publishes its reasons for so finding or (ii) as to 
which the Exchange consents, the Commission will:
    (A) By order approve such proposed rule change, or
    (B) Institute proceedings to determine whether the proposed rule 
change should be disapproved.

IV. Solicitation of Comments

    Interested persons are invited to submit written data, views, and 
arguments concerning the foregoing, including whether the proposed rule 
change is consistent with the Act. Persons making written submissions 
should file six copies thereof with the Secretary, Securities and 
Exchange Commission, 450 Fifth Street, NW, Washington, DC 20549-0609. 
Copies of the submission, all subsequent amendments, all written 
statements with respect to the proposed rule change that are filed with 
the Commission, and all written communications relating to the proposed 
rule change between the Commission and any person, other than those 
that may be withheld from the public in accordance with the provisions 
of 5 U.S.C. 552, will be available for inspection and copying in the 
Commission's Public Reference Room. Copies of such filing will also be 
available for inspection and copying at the principal office of the 
Exchange. All submissions should refer to File No. SR-AMEX-2001-106 and 
should be submitted by February 27, 2002.

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\10\
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    \10\ 17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 02-2793 Filed 2-5-02; 8:45 am]
BILLING CODE 8010-01-P